Japan bond yields continue to surge higher on the week

Japanese government bond yields are experiencing a significant surge this week, particularly following Prime Minister Takaichi's announcement of a snap election on February 8. This led to the dissolution of the lower house of parliament scheduled for this Friday. Consequently, 40-year Japanese government bond yields reached a historic high, breaching 4% for the first time, while 30-year yields also surged over 40 basis points. Additionally, 10-year yields climbed to 2.38%, its highest since 1999. This exacerbation stems from Takaichi's pledge for further tax cuts, potentially worsening Japan's already concerning fiscal situation. Investors should be cautious as this dynamic could influence global bond markets, especially with Japanese investors potentially shifting their focus back to domestic bonds instead of U.S. debt, which may increase U.S. bond yields as a result.